Why Apple acquired Beats for $3 billion—its largest acquisition

Why Apple acquired Beats for $3 billion—its largest acquisition

By Puneet Sikka
•
Jun 2, 2014 10:14 am EDT

Apple acquires Beats for $3 billion, its largest acquisition to date

Apple (AAPL) announced on May 28 that it has agreed to buy subscription streaming music service Beats Music and Beats Electronics, which makes headphones, speakers, and audio software, for a valuation of $3 billion. The Beats brand will remain separate from Apple’s. This acquisition is by far the largest in Apple’s history, easily beating the $400 million acquisition of NeXT software in 1997. The Beats Music acquisition allows Apple to enter into the streaming music service market, as consumers’ music listening preferences have started to change. Historically, Apple has been selling individual songs or albums through its iTunes Store, but consumer interest has shifted towards low-cost subscription services.

Beats will give Apple a competitive edge in the music streaming market

Acquiring Beats would also help Apple compete more effectively with other popular services, such as Pandora (P) and Spotify. As the chart above shows, Pandora leads the Internet radio space with a share of about 31%. In addition to the players shown above, there are a few smaller but potentially threatening players, including Samsung (SSNLF). Samsung recently launched a new free music application called Milk for users of its Galaxy devices, and this will be available as a download on Google (GOOG) Play. Then there’s Amazon (AMZN), which according to BuzzFeed is preparing to launch a music streaming service for its Prime subscribers.

Beats Music will complement Apple’s music service

Apple has long been selling individual songs for between 69 cents and $1.29 through its iTunes Store. In September last year, Apple introduced the iTunes Radio service, through which users can listen to free ad-supported music. Then there’s the $24.99-per-year iTunes Match subscription service through which users can listen to ad-free songs. Beats has about 250,000 paying subscribers paying $9.99 per month for its music streaming service. So Beats will complement Apple’s current music service.

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